This article is US focused, but we all follow the Fed, more or less 🙂

Historically, the third quarter tends to be the weakest period for equities as investors contend with summer slowdowns and seasonal volatility, but this year was anything but typical. Investor sentiment remained resilient, and the market continued to grind higher despite a steady undercurrent of policy and geopolitical uncertainty.

Two main catalysts have driven this remarkable market resiliency. First, corporate earnings growth has been robust, supported by steady consumer spending, healthier profit margins, and solid productivity gains from ongoing technological innovation. Over 50% of the S&P 500’s returns over the past year have come from earnings growth (the combination of sales growth and margin expansion). This is a much healthier and more sustainable source of return than simple multiple expansion, although all major components of return decomposition — including valuation expansion and dividends — have contributed positively during this period.

The second driver of strength has been policy expectations. The Federal Reserve delivered its first rate cut of the year in September, citing weaker job market data and moderating inflation pressures. Markets now anticipate one or two more cuts in 2025 and additional easing in 2026 as the Fed steers rates toward a more neutral stance. This policy shift has supported risk assets broadly and boosted confidence that a soft landing remains achievable. Together, these factors helped power one of the strongest third quarters in recent history and extended the S&P 500’s winning streak to five consecutive months.

Economic Outlook

The full effects of new and proposed tariffs have yet to ripple through the economy, and the eventual impact on inflation and trade flows is uncertain. Supply chain normalization has kept upward price pressures in check so far, but renewed tariff rounds could test that equilibrium. For now, the economy appears to be finding its footing in a later-cycle environment, with growth modest but stable and inflation trending lower, if unevenly.